The Impact of Receiving Indemnity Payout on Informal Risk Sharing

Recent research has proposed combining index insurance with informal group risk sharing to overcome the individual shortcomings of informal risk sharing and index insurance. If this complimentary relationship holds universally, it can potentially: 1. alleviate the low take-up rate puzzle faced by index insurance pilot programs; 2. improve the sustainability of informal risk sharing in the case of aggregate shocks. We specifically investigated the hypothesis that the availability of indemnity payment from index insurance will increase the involvement in informal risk sharing. We utilized the Index-Based Livelihood Insurance program piloted on pastoralists in Kenya and use the data provided by the International Livestock Research Institute. We found that, except for receiving cash, having received index insurance indemnity significantly increases the tendency to receive cash, receive in-kind transfer and give in-kind transfer as a gift from/to any other households.

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Conference Paper/ Presentation
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JEL Codes:
D81; O16; O 17

 Record created 2017-04-01, last modified 2018-01-23

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